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Tenants and Owners Battle Over Defecting From Mitchell-Lama

LIKE middle-class islands floating in an increasingly upscale sea, Mitchell-Lama developments scattered throughout New York City and its suburbs range from individual buildings in Brooklyn with a few hundred occupants to the Co-op City complex in the Bronx with more than 15,300 apartments and 55,000 residents. But sea changes have come to many of these islands, and on others it is about as tranquil as a typhoon.

The main reason for the turbulence is the confrontation between landlords eager to withdraw their developments from the Mitchell-Lama program, as state law allows them to to do after 20 years, and tenants who fear that the end of Mitchell-Lama ceilings and the imposition of rents that could be two or three times higher than current levels, or more, would force them out of their apartments.

Defenders of allowing owners to withdraw say that without this option there would have been little incentive for them to build the apartments in the first place. And to renege now, the landlord side says, would undermine public confidence in government promises.

Critics reject that argument. ''No developer builds these projects with their eyes 20 years down the road,'' said Michael McKee, a longtime tenants' advocate. ''They build them for the tax breaks, subsidies and write-offs.''

The bulk of the 269 Mitchell-Lama developments, with a total of more than 105,000 apartments, are in New York City and its immediate suburbs, where incentives for landlords to free the units from rent regulations are strongest. Most of the developments, a number of them sponsored by labor unions, were put up between 1962 and 1978 under state legislation designed to give their developers a modest but guaranteed return on their investment through tax breaks and other incentives. Part of the incentive was the owners' right to take their buildings out of the program after a set period of years, currently 20 years.

Bob Woolis, co-chairman of the Mitchell-Lama Residents Coalition, said there was nothing sacrosanct about 20 years, after which owners can ''buy out'' of Mitchell-Lama by repaying the mortgage on the development and complying with certain other procedural requirements. At first, briefly, ''there was no buyout provision,'' Mr. Woolis said, ''then 15 years, then 30 years, then 20. So the law can be changed and should be when there's a housing emergency like we're having right now.''

Some critics of the buyout provision would rescind it altogether, while Vito J. Lopez, chairman of the New York Assembly's Housing Committee, favors changing the law that provides rent stabilization for occupants of buildings that withdraw from Mitchell-Lama, but is limited to buildings built and occupied before Jan. 1, 1974.

''Under our law,'' Mr. Lopez said, referring to a bill he has introduced in the Assembly, ''rent stabilization would also apply to buildings that buy out of the Mitchell-Lama program that were constructed and occupied'' since 1974. That bill passed the Assembly in each of the last two years, but it has not been voted on in the State Senate. It is scheduled to be voted on again in the Assembly next month.

Passed by the New York Legislature in 1955, the Mitchell-Lama law was intended to create apartments for moderate- and middle-income families. Its legislative sponsors were MacNeil Mitchell, a lawyer and Republican assemblyman and state senator who represented the former Silk Stocking District on Manhattan's East Side for 27 years, and Alfred A. Lama, an architect and Democratic assemblyman who represented the Brownsville section of Brooklyn for 30 years.

''Back then, the postwar housing shortage was beginning to be felt, so Mitchell-Lama was built for the middle third of the market,'' said James D. Garst, who has owned a co-op in Columbus Park since it opened at 100 West 94th Street in 1967 and who is a member of the board of the Mitchell-Lama Council, which represents a number of co-ops. ''The whole plan of Mitchell-Lama was that we would build our way out of the housing shortage.''

That never happened, of course, but almost no one faults the program or its architects for its good intentions.

''The program came at a wonderful time, when there was a special need for housing,'' said Roger Starr, who has written widely and often critically on New York housing policy. ''On the whole, it has been a very successful enterprise.''

IRONICALLY, Mr. Starr, who was born and raised in Manhattan, spoke by telephone from Stroudsburg, Pa., to which he and his wife retired four years ago. ''We were tremendously happy with our apartment in Midtown,'' he said, ''but we decided to move here when we realized that the rent on our apartment cost too much for us to afford to do the other things we enjoy.''

Mr. McKee, who lobbies on behalf of tenants, characterizes Mitchell-Lama as ''the most successful housing program that any government has ever devised.''

Mitchell-Lama was ''the first program to openly provide government philanthropy for the middle class,'' wrote Richard Plunz, the architect and historian, in his book ''A History of Housing in New York City'' (Columbia University Press, 1990). It was designed, he wrote, ''to promote construction of urban middle-class housing, which neither the public housing program nor unsubsidized private developers were producing.''

The last Mitchell-Lama development was built in the Bronx in 1978, according to Lee Chong, director of land use, housing and development in the office of the Manhattan borough president. Before construction dwindled to a close in the 1970's -- a time when numbers of people who could afford New York were moving to the suburbs, and when immigration into the city had not yet crested into the wave it has become in recent years -- more than 105,000 Mitchell-Lama rental and cooperative apartments had been added to the state's housing stock, much of it in New York City. This included about 60,000 units in the 141 developments sponsored by New York City, whose officials were especially eager to keep police officers, teachers, firefighters, civil servants and other middle-class workers in the city.

An oversight hearing in 1999 before the New York City Council Committee on Housing and Buildings revealed that the median household income of Mitchell-Lama tenants is $21,611, compared with $26,000 for all New York City tenants. The median age of Mitchell-Lama tenants is 47, compared with 42 for all tenants. And 31.2 percent of Mitchell-Lama tenants pay more than 50 percent of their incomes in rent, compared with 27 percent of all renters.

Since 1987, 64 developments statewide have bought out of Mitchell-Lama, including 32 in New York City. Eleven withdrawal applications are pending. Among them are Ruppert Yorkville Towers (1,257 apartments), at Third Avenue between 90th and 92nd Streets; Waterside Plaza (1,098), East River between East 25th and 27th Streets; North Waterside (369), also at Waterside Plaza; West Side Manor (245), 70 West 95th Street; Cooper Gramercy (167), Second Avenue and 23rd Street; and Middagh Street Studios (42), 20 Henry Street in Brooklyn Heights.

Unfortunately for tenants, five of these developments were initially occupied after 1973; therefore, they are not eligible for rent stabilization protection under current law, while the occupancy date of the Waterside complex is in dispute.

There has been persistent speculation that the mammoth Co-op City and Roosevelt Island, both of them Mitchell-Lama projects sponsored by New York State, plan to withdraw from the program. But the speculation about Co-op City has never been confirmed. And a buyout at Roosevelt Island, in the East River, would be especially problematical because of its unique jurisdiction: it is maintained, operated and developed by the Roosevelt Island Operating Corporation, which was created by the State Legislature. New York State holds a 99-year lease on the land, and when it expires in 2068, ownership will revert to New York City.

Under the laws that created the Mitchell-Lama program, both the city and state offered property tax abatements and low-interest mortgages repayable over as long as 50 years to attract private developers. In return, developers agreed to limit the rent they charged and, in most cases, to limit their profit to 6 percent a year.

But ever since New York City real estate prices started surging in the early 90's, owners of buildings in good condition and in desirable locations have been eager to multiply their profits. That means getting out from under the ceilings Mitchell-Lama puts on rental apartments and co-ops -- ceilings far below market rates. In fact, Mitchell-Lama rules essentially prohibit owners of co-ops from making a profit on them when they move.

The eagerness of landlords and some co-op owners to leave Mitchell-Lama is more than matched by the resistance of rental tenants who are unable or unwilling to pay doubled or tripled rents or face possible eviction.

Take, for example, Middagh Street Studio Apartments at 20 Henry Street in Brooklyn Heights, an abandoned candy factory that was transformed under Mitchell-Lama and initially earmarked mostly for artists.

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Two years ago, the Penson Corporation, the building's management company, served notice of the owner's intention to leave Mitchell-Lama. But a group of tenants, with the advice of lawyers, found the building's deed and other pertinent documents in New York City records departments, including documents with covenants that, the tenants and their advisers maintain, preclude a buyout before June 26, 2002.

Gerald Goldstein, the lawyer for Edward Penson, president of the management company, said Penson had ''the absolute right'' to withdraw from the Mitchell-Lama program after 20 years, ''and our position is that it was up last year or the year before.'' Meanwhile, the matter is pending, but even being allowed to remain in their apartments for another year brings tenants little cheer.

''Where would we go after that?'' asked Kathleen Johnson, a Middagh resident. ''And how could we afford to stay? If you're not a c.e.o., to get a nice affordable apartment you practically have to give up your firstborn.'' With her husband, Ollie, Ms. Johnson lives in a rambling, bilevel studio in the building with their three children, ages 10, 14 and 15. Both Johnsons have lived in the 42-unit building since their marriage in 1984, while Mr. Johnson, a graphic designer, has lived there since 1977.

Farrand Ennis, who has lived in a Middagh apartment since it opened in 1975, retired as a freelance graphic artist four years ago and still lives in the building on just her Social Security. ''Unless we can do something to keep us here, I'll have to go someplace,'' she said. ''But God knows where that will be. Like Scarlett O'Hara, I'll think about it tomorrow.''

Tenants in other buildings whose landlords want to buy out of Mitchell-Lama express similar uncertainty and apprehension about moving.

To Mr. Goldstein, the problems caused by the shortage of moderately priced housing in New York City is a situation that ''each family has to answer for themselves.'' He added that some of the politicians complaining about the harm that will result from landlords leaving Mitchell-Lama ''never bothered to advise their clients that this was always a possibility.''

It is easy to understand why tenants of Waterside Plaza -- with its million dollar view of the East River, controlled rents in its three 37-story towers and the 31-story North Waterside tower with 369 federally subsidized apartments for low- to moderate-income tenants -- want to remain there. It is also understandable why its owners envision the development's 1,098 apartments as a potential gold mine.

Unlike so many developments in New York whose owners covet anonymity, Waterside's owners include Richard Ravitch, the high-profile former New York City mayoral candidate and chairman of the Metropolitan Transportation Authority.

TWO years ago, Mr. Ravitch announced that he intended to remove Waterside from the Mitchell-Lama program. Not only that, he contended that the development's tenants do not qualify for rent stabilization because not all four towers had been completed and occupied before the Jan. 1, 1974 cutoff date. The tenants disagree, and the matter is in litigation.

''Since February 1999, it has been a game of chess between us,'' said Kathleen A. Fish, secretary of Waterside's tenants' association. ''The emotional trauma this has inflicted on tenants is just terrible.''

Judy Febbraro, a legal secretary who has lived in Waterside Plaza for 24 years, agreed. ''Almost everybody here's in a crisis mode,'' she said. Since moving into a one-bedroom apartment in 1981, after four years in a studio, her rent has just about doubled to its current $850. While manageable on what she described as her ''middle-income salary,'' Ms. Febbraro acknowledged that it is well below what her apartment would rent for on the open market.

Ms. Febbraro wonders about the social as well as financial implications if rent ceilings are removed from Waterside apartments. ''What will happen to the middle class in this city?'' she asked. ''What will become of New York once it becomes just wealthy transients and wealthy corporate tenants?''

Milton Mollen -- a former presiding justice of the Appellate Division of the State Supreme Court and chairman of a special commission to investigate corruption within the city's Police Department who is currently an adviser to Mr. Ravitch in the Waterside wrangling -- said there is merit on both sides of the tenant-landlord divide.

''Tenants would like to continue paying below-market rent,'' he said, ''and developers want market rents because their profits were limited down the years. So we're trying to come to some settlement at Waterside that would not be for full market value.''

Several such settlements have been reached between tenants and landlords in other Mitchell-Lama projects, but await final approval from various government agencies. The most recent is that arrived at five weeks ago at Ruppert Yorkville Towers. Under that agreement the buildings are to be converted to condominiums and tenants would be allowed to buy them at a 20 percent discount and sell them to a third party, with the hope of an additional profit. Rents for tenants who do not buy their condos would generally not exceed a third of their income, and subsidies will be available from the city or the landlord, depending on tenants' income.

Earlier, in 1999, tenants and landlords in Cooper Gramercy, which did not qualify for rent stabilization, agreed to keep the building in the Mitchell-Lama program through 2005. In the interim, most tenants, those who earn at least 80 percent of the citywide median income, would pay 16 percent a year over the base rent, up to 80 percent of projected market rents by 2006.

The agreement, which also includes protection for tenants earning between 50 and 80 percent of the median income and those at less than 50 percent, is awaiting approval of New York City's Department of Housing Preservation and Development and the United States Department of Housing and Urban Development.

Some Ruppert Yorkville or Cooper Gramercy tenants voted against their respective settlements, of course, largely on grounds that they would give up too much to the landlord for too little in return. Some Waterside tenants agree with this assessment. Mrs. Fish, for example, said she would not like a deal at Waterside similar to the one brokered for Ruppert Yorkville. ''At the end of two and half years years, what would you have?'' she asked, referring to the agreement that the landlord at Ruppert Yorkville would not charge the full rent until about two and a half years after the buildings left the Mitchell-Lama program. ''You'd have two and a half years to find another place to live.''

However, Ms. Febbraro has a different opinion. ''I think the Ruppert Yorkville settlement would be acceptable here,'' she said, ''because at least you'd be getting an option at an insider's price.''

Even supporters of the Mitchell-Lama program concede that it has shortcomings, including people who owe their tenancy in subsidized apartments to political connections, and well-heeled tenants whose income far exceeds the limit of seven times the annual rent for a family of no more than three or eight times the annual rent for four or more family members.

Tenants whose income exceeds the limit are required to pay a surcharge of as much as 50 percent above their base rent or face eviction.

While recent controversies and legal maneuvering have brought the Mitchell-Lama program back into the spotlight, the underlying questions of public policy have been discussed for years.

Acknowledging that ''there are substantial arguments in favor of every party's interests,'' David J. Sweet and John D. Hack, lawyers writing in the Fordham Urban Law Journal 12 years ago, concluded: ''Because of the public interest in affordable housing, the preservation of the present stock of such housing must be a major goal of any policy in this area. In developing a solution, the New York State Legislature must view the Mitchell-Lama debate not merely as a dispute between landlords and tenants, but rather as an issue which affects the future preservation of a major public resource.''

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A version of this article appears in print on April 29, 2001, on Page 11011001 of the National edition with the headline: Tenants and Owners Battle Over Defecting From Mitchell-Lama. Order Reprints|Today's Paper|Subscribe